PWO AG (ETR:PWO) Looks Interesting, And It's About To Pay A Dividend

PWO AG (ETR:PWO) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase PWO's shares on or after the 7th of June, you won't be eligible to receive the dividend, when it is paid on the 11th of June.

The company's next dividend payment will be €1.75 per share. Last year, in total, the company distributed €1.75 to shareholders. Based on the last year's worth of payments, PWO has a trailing yield of 5.6% on the current stock price of €31.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether PWO has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for PWO

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately PWO's payout ratio is modest, at just 33% of profit. A useful secondary check can be to evaluate whether PWO generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that PWO's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit PWO paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see PWO's earnings per share have risen 20% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PWO's dividend payments are broadly unchanged compared to where they were 10 years ago.

Final Takeaway

Should investors buy PWO for the upcoming dividend? It's great that PWO is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks PWO is facing. Case in point: We've spotted 2 warning signs for PWO you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.